Saturday, December 15, 2012

BOJ's JGB holdings exceed ¥110 trillion; BOJ, Fed in a QE race

The Bank of Japan continues to build its holdings of Japanese government securities. The holdings crossed ¥110 trillion, now representing 23% of the nation's GDP. By comparison, the Fed's treasuries holdings represent 11% of the US GDP, while its total securities holdings (including MBS) is roughly 17.5%. Of course going forward we have a "race" between the two central banks.

Source: BOJ

The currency markets seem to indicate that the BOJ will ultimately win the race, as the yen continues to weaken. This is driven by three factors:

1. Japan is still facing worsening economic conditions, particularly weakness in manufacturing (see FT story)

2. The new government will pressure the BOJ to do more for the economy (see post).

3. Continuing pressure from China over the disputed island (see NY Times story) creates further downside risk for the yen.

Yen per one dollar
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